john coates financial disclosure
Private equity fund investors are already and increasingly demanding climate-related information and commitments from the funds or their advisors. Voluntary, unassured disclosures are more likely to include greenwashing, impairing investors ability to assess and price risk, and undermining honest companies ability to communicate with investors and build confidence; some greenwashing rises to the level of fraud, while other disclosures or omissions may not rise to the level of actionable fraud with proof of scienter. [1],[2] Shareholder advocates as well as business journalists and legal and banking practitioners, and even SPAC enthusiasts themselves[3] are sounding alarms about the surge. The D.C. Circuits decision, moreover, was premised in part on a representation by the Commission that the Commission would continue to reevaluate the need for such [new disclosure] requirements from time to time. The climate disclosure rule now proposed by the Commission is precisely in keeping with that long-standing commitment by the Commission. On the issue of global comparability, in the first instance, arguments in favor of a single global ESG reporting framework are persuasive. Still another study finds that mutual fund managers are misestimating climate risks based on current, inconsistent and unreliable disclosures. Congress also created the Commission as an agency that could thoughtfully address problems too politically charged to be easily resolved on Capitol Hill. Each attorney is granted unlimited access to high quality, on-demand premium content from well-respected faculty in the legal industry along with administrative access to easily manage CLE for the entire team. Some may view these limits as creating incentives for public companies to go private, or for private companies to not go public. In this way, SPACs offer private companies an alternative pathway to go public and obtain a stock exchange listing, a broader shareholder base, status as a public company with Exchange Act registered securities, and a liquid market for its shares. As a result, it would not intrude into topics or company-investor relationships that are markedly different from other authorized and long-standing rules. To recap what is discussed above, EPAs authority is both materially broader and narrower than the Commissions, even as to the subpart of the Commissions rule addressing greenhouse gas emissions: In sum, EPA could not duplicate (or even approximate) the proposed investor-oriented rule, and the Commission could not duplicate (or even approximate) EPAs greenhouse gas disclosure rules. The complete publication, including footnotes and annex, is available here. The financial disclosure that John Coates filed also offered a rare public peek into the costs of corporate compliance monitors. An increasing number of US public companies are making major capital expenditures to pursue climate-related strategies, raising financial risks to pursue opportunities for their investors. 2020) (breach of duty of candor due to failure to disclose conflict of interest in merger); Chester County Emp.s Ret. The Commission is charged with protecting investors generally, and even if a subset of investors believe that they do not (or do) want or need particular information, their views should not necessarily control the Commission in the exercise of its expert judgment. If a U.S. public company owns facilities outside the US, as many do, they would be required to provide investors with information about those facilities. If you need immediate assistance, call 877-SSRNHelp (877 777 6435) in the United States, or +1 212 448 2500 outside of the United States, 8:30AM to 6:00PM U.S. Eastern, Monday - Friday. John, Joel. A public company might have a large amount of transition risk due to many different emission sources, each of which is below EPA thresholds. But just as important is the recognition of the costs associated with not having ESG disclosure requirements. Among them were Alliance-Bernstein, Neuberger-Berman, Schroder and Wellington, as well as BlackRock and State Street. The Congress authorizes and directs that, to the fullest extent possible: (1) the policies, regulations, and public laws of the United States shall be interpreted and administered in accordance with the policies set forth in this chapter, and (2) all agencies of the Federal Government shall make available to States, counties, municipalities, institutions, and individuals, advice and information useful in restoring, maintaining, and enhancing the quality of the environment. These understandings help explain Congresss decision to direct the Commission to specify additional disclosures under the 1934 Act, to adapt the statute to emerging financial risks and opportunities and maintain efficient capital market pricing and investor confidence over time. But for purposes of assessing the legal issues raised by the proposed rule, this limit underscores how the rule is investor-oriented and tailored, consistent with the securities laws. John C. Coates is the John F. Cogan, Jr. Here, the proposal frames difficult, subsidiary choices, which divide reasonable observers. Finally, it is beyond argument that the Clean Air Act nowhere mentions the Commission much less modifies its disclosure authority. [14], But, lest the safe harbor swallow the entire securities disclosure regime, the PSLRA specifically excludes from the safe harbor statements made in connection with specified types of securities offerings. The requirements and have specifically included disclosures related to the environment. If there are risks to the use of cost-effective, complete, and reliable forward-looking information in any setting, those risks should be carefully evaluated in light of the goals of the federal securities laws. LONDON, Oct 10 (Reuters) - When John Coates was on a winning streak during his days as a trader at Deutsche Bank and Goldman Sachs, the narcotic-like "high" he experienced was so powerful he was determined to find out more. My remarks here do not attempt to answer those or the multitude of other questions about ESG disclosures. In the first stage, it registers the offer and sale of redeemable securities for cash through a conventional underwriting, sells them primarily to hedge funds and other institutions, and places the proceeds in a trust for a future acquisition of a private operating company. (IOC) (AOC) 2020IOC ICAS . One of the primary purposes of the 1934 Act was to augment the 1933 Act by giving the Commission authority to require ongoing reports by companies whose securities were traded on stock exchanges. Public companies have a strong incentive to keep abreast of what information their investors would reasonably value. Investments are being held back in the absence of that information. Financial Reports. 2019-0100-KSJM, 2019 WL 1313408 (Del.Ch. 3d 1041, 1049-50 (N.D. Cal. Regulation -- the Investment Company Act is one of the most successful disclosure laws . This statement does not alter or amend applicable law and has no legal force or effect. The Commission does, but has no investor-protection authority over climate impacts more generally, such as those on communities or habitats, beyond impacts that are important to investors decision-making. He also served on the SECs Investor Advisory Committee, for which he chaired the Investor-as-Owner Subcommittee. Moreover, state law, such as in Delaware, may require disclosure of projections used by the boards or their advisors in these transactions. Congress in 2012 thus ratified long-standing Commission exercises of the unambiguous authority in 7(a)(1). 3:09-CV-01740 VLB, 2013 WL 1188050 (D. Conn. Mar. Investors should have access to that information and then be allowed to make their own decisions about how to invest or vote. Public Statement on ESG Disclosure On March 11, 2021, the SEC published a statement by John Coates, acting director of the SEC's Division of Corporation Finance, in connection with remarks given at the 33 rd Annual Tulane Corporate Law Institute (available here ). This post is based on his recent comment letter. No court has ever found that this long line of exercises of the basic authorities on which the current rule relies were beyond the Commissions authority. Surveys of individual investors by firms such as Morgan Stanley confirm this evidence. The ways investors may use the information are not predetermined by the rule, nor would the rule itself limit how companies speak about whether (for example) climate risks are currently being overestimated or producing excessive disinvestment. The idea that the SEC can go out and do more research on these issues, however, was dismissed by former SEC general counsel John Coates, now a professor at Harvard Law School, who wrote in his. As we address these questions, we should keep in mind some additional points. Some critics argue that investor demand should not be equated with investor protection, and it is true that the Commission has not (for good reason) attempted to survey investors in setting its own rulemaking agenda. 23, 2013) (citing Sawant v. Ramsey, 3:07-CV-980 VLB, 2010 WL 3937403 (D. Conn. Sept. 28, 2010) (holding that otherwise forward-looking statements that contain misrepresentations of current facts are not protected by the safe harbor provision of the PSLRA or the bespeaks caution doctrine); In re Nortel Networks Corp. Sec. The proposed rule is a rule that specifies details of disclosure requirements. 11, Special Purpose Acquisition Companies (December 22, 2020). John C. Coates and R. Glenn Hubbard, Competition in the . 2634.101-805 (see Subparts A-H) Financial disclosure reports are used to identify potential or actual conflicts of interest. As discussed in Point II, each attack is mistaken and misleading because the proposed rule is not the critics fictional new rule. What is the upshot of this? Because, finally, the disclosures are financial and do not extend to the large part of the economy owned by private companies, they would not constitute general climate change policy, such as a carbon tax or emissions cap-and-trade scheme. Most large public companies report much climate information, albeit in a non-comparable and inconsistent way. More than thirty years later, EPA had not applied its authority to require emissions disclosures to greenhouse gas emissions. As detailed above, the proposed rule could not fairly be viewed as embodying climate change policy generally. Again, this language is not limited to what is necessary to protect investors, but gives the Commission discretion to specify what information is appropriate to protect investors and markets, based on its fact-finding and expert application of the statutes goals to evolving investor needs. https://www.law.com/nationallawjournal/2021/03/25/harvard-laws-john-coates-now-at-sec-reveals-consulting-income-clients/. It proceeds in two stages. For example, they point to the broader ESG movement and claim the fictional new rule requires disclosure about ESG, or about environmental impacts not relevant to investors. P.C. Citing to a 1975 release, the Commission in 2016 noted, non-controversially, that In [the 1975] release, the Commission concluded that, although it is generally not authorized to consider the promotion of social goals unrelated to the objectives of the federal securities laws, it is authorized and required by NEPA [the National Environmental Policy Act] to consider promotion of environmental protection as a factor in exercising its rulemaking authority. This statement denies authority only if disclosure is unrelated to investor protection, protection of market integrity, or the public interest more generally. Contact Us| Her leadership will be invaluable as the Division facilitates disclosure under our current rules and undertakes rule modernization to meet the challenges of today. It is the first time that public investors see the business and financial information about a company. That ESG no longer needs to be explained illustrates how important these issues have become to todays investors, public companies and capital markets. [7] This, such observers assert, is the reason that sponsors, targets, and others involved in a de-SPAC feel comfortable presenting projections and other valuation material of a kind that is not commonly found in conventional IPO prospectuses. The proposed disclosures, including emission data, will help investors assess and price these risks and opportunities. EPA only has authority over US emission sources. If those emissions targets are serious, they will matter to investors by leading to major changes in corporate strategy and investment policy, and in the financial risks and returns companies will generate for investors. To be sure, an IPO is generally understood to be the initial offering of a companys securities to the public, and the SPAC shell company initially offers redeemable equity securities to the public when it first registers to raise funds in order to look for and later acquire a target. Its greenhouse gas emission disclosure elements are aligned with the EPAs existing requirements for US emission sources, which in turn are aligned with the widely used and privately developed Greenhouse Gas Protocol, which was a joint product of companies, investors and other organizations. Previously, Coates was a partner at Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and financial institutions. Nonetheless, whatever one thinks about the incentives for companies to go public or private, that question only bears on the efficiency or capital-formation impacts of the proposed rule, and how they compare to its advancement of investor protection, not on its legality. The proposed rule does not call for opinion or controversial speech of the kind that raises First Amendment concerns. As noted in the Commissions 2010 climate guidance, A 2007 [GAO] report states that 88% of all property losses paid insurers between 1980 and 2005 were weather-related. Since 1980, the US alone has experienced 323 severe weather events causing more than $1 billion of damage each. Another finds that climate risks are reflected (but imperfectly) in out-of-the-money put option prices. That does not make those rules unduly burdensome or costly. The fact-finding for this rule, and the financial and accounting expertise on which it is based, is in keeping with the long tradition in which the Commission and its staff have applied expert knowledge about general risk/return, accrual and related concepts to an array of different source of risk and potential liability. In contrast to the specific mentions of these other federal agencies, the authorizing document, Reorganization Plan No. The law went beyond combating affirmative fraud, where intent, materiality, and damages had a role to play, and added to it a general philosophy of seller beware, in which all pertinent facts must be disclosed before a company sells stock, and liability could attach even without traditional hallmarks of fraud, albeit with separate limiting conditions. Is guidance needed about how projections and related valuations are presented and used in the documents for any of these paths? He had been serving as the independent monitor for the U.S.. Coates was angry because he believed Wylie was behind moves to unseat him at the then upcoming AOC election - an allegation Wylie denied. Congress also recognized that full and fair disclosure would enhance investor confidence. [17] But it also is clear that investors at the time of the initial SPAC filing cannot understand all aspects of the long-term value proposition of the offering, precisely because a SPAC does not have operations or a business plan beyond a search for a target. It also cut back on liability of disclosure. Washington D.C., June 14, 2021 . EPA did not use its authority to develop greenhouse gas emission disclosure requirements until 2009, and did so only after being directed to do so by Congress in an annual budget appropriations rider. The limitations in 7(a)(2) were imposed in 2012, by which time (as detailed below and in Annex A), the Commission had repeatedly relied upon the language in Section 7(a)(1) to require disclosures of all kinds, including non-financial disclosures, environmental disclosures and climate-change related disclosures. It does not cap emissions, an approach that would be typical of environmental regulation generally. The Commission cannot shirk its duty to protect investors even if that duty to an extent overlaps with EPAs duty to protect the environment. John Coates, the producer of the classic animation film The Snowman, has died of cancer. It also illustrates the pace of ESG developments. The rule proposes disclosures of information about financial risks and opportunities that are reasonably understood as appropriate for the protection of investors. With that overview, I would like to focus on legal liability that attaches to disclosures in the de-SPAC transaction. And she is right: environmental compliance costs and risks from non-compliance have been required by the basic business description line item in Regulation S-K, which ultimately traces back to Schedule A in the 1933 Act itself, and MD&A and risk factor requirements that would encompass known climate-related risks and uncertainties were first adopted in 1968. To the extent that those who disfavor consideration of legislative history truly give primacy to legislative text and structure, there is no plausible basis on which to argue the Commission lacks authority to adopt the proposed rule. Congress, having made a fundamental policy judgment to require full and fair disclosure to protect investors, directed the Commission to make ongoing subsidiary choices of precisely what details of disclosure to require and when, after engaging in fact-finding and analysis that Congress chose not to try to do itself. The case for the Commissions authority to adopt the proposed rule is a simple, two-premise syllogism: Hence the rule is authorized. Exxon Mobil plans to invest $100 billion in carbon capture infrastructure. Because it is an investor-focused disclosure rule, and in no plausible way advances a general policy on climate, it raises no new major question of that kind, that might theoretically justify a departure from standard methods of statutory interpretation. Coates, recently finished work on a follow-up to the 1982 film to celebrate its . After completing his Ph.D., Coates traded derivatives for Goldman Sachs and Merrill Lynch, and then ran a trading desk for Deutsche Bank in New York. 2021; 2020; 2019; 2018; 2017; 2016; 2015; 2014; 2013; General Motors announced it plans to sell only electric passenger vehicles by 2035. Mar. [1]This statement represents the views of the Acting Director of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (SEC or Commission). As regards climate change, environmental agencies might do well to focus on global activities as well, but it is unclear how EPA could with its existing legal authority impose requirements on companies not operating in the US. Earnings statements, analyst call scripts, investor presentations, and the regular flows of press releases, investor relations communications and other ways companies supplement disclosure requirements are commonly longer or more complex than anything required by the Commissions rules. I thank Michael Conley for his service as Acting General Counsel, and I look forward to continuing to work with Michael and John on critical matters before the Commission., I am honored to continue to help advance the SECs mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation, said Coates. Courts have rejected attempts to deny application of the securities laws and the philosophy of full disclosure in cases involving the sale of a whole company, if effected through the sale of securities, or where conduct may violate both corporate law and the Commissions disclosure laws. The Commissions authority is plain in its organic statutes, legislative history, in long-standing precedent, in both court decisions and its own rules, and repeatedly accepted by Congress through amendments of the statutory bases for those rules. She received an undergraduate degree from Princeton University and a J.D. Instead, the rules limitsto public companies with securities trading in the U.S.again underscore how it is well within the scope of traditional securities law, designed for investor protection, and not for other goals. In other words, public companies disclosures were expected to go beyond basic financial statements. [6] SPAC Status by Year of IPO, SPACInsider (last visited Apr. Financial Disclosure Reports include information about the source, type, amount, or value of the incomes of Members, officers, certain employees of the U.S. House of Representatives and related offices, and candidates for the U.S. House of Representatives. 25, 2021); Jennifer Bennett, Canoo Faces Investor Suits Over Post-SPAC Deal Focus Changes, Bloomberg Law (Apr. It does not even address new topics for purposes of disclosure, but instead (as discussed above) changes the specificity and mode of disclosure about long-regulated topics. But it remains true that IPOs are understood as a distinct and challenging moment for disclosure. The long-recognized fact the statutes were remedial laws following the Crash of 29. Said plainly, many investors in the SPACs own initial offering are not the investors in the ultimate public companys ongoing business operations. He steps down from the AOC on Saturday, less than 12 months after helping Australia win its third Games bid, this time in Brisbane in 2032, but retains his exalted IOC status. They have been adopted under Chairs appointed by both Democratic and Republican Presidents, in every decade since 1933. Renee brings deep expertise in corporate governance and securities law to the Division of Corporation Finance. Professor Coates served as General Counsel and as Acting Director for the Division of Corporation Finance for the SEC. LexisNexis and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. The proposed rule is reasonably designed to address these inconsistencies, give investors comparable information, and make it more reliable. [12] Cede & Co. v. Technicolor Inc., 634 A.2d 345, 361 (Del. The Commissions authority to consider environmental risks was reinforced and made even more clear by another statute, which critics do not seem to have even noted, much less considered, as detailed below. It would not affect the way that property insurers underwrite, pool or reserve against climate risksthat is for insurance regulators. About Us| No case is the contrary, and critics of the Commissions proposed rule cite none. Any simple claim about reduced liability exposure for SPAC participants is overstated at best, and potentially seriously misleading at worst.
